By Martin Banks - 24th September 2012
Any manipulation of the rates has a very bad impact on public confidence
EU commissioner Michel Barnier has called for "strong and robust" measures to combat market manipulation such as the rigging of benchmark interest rate Libor.
Speaking at a hearing in parliament on Monday, the official said this should include both criminal and "administrative" sanctions against offenders.
Barnier, the commissioner in charge of regulation, said, "We have to get rid of this 'everything is allowed, everything is permitted' attitude. I want to see an EU-wide ban on manipulation of reference indexes. No complacency has to be the buzzword."
The Frenchman was speaking at a hearing over the Libor interest rate rigging scandal.
Libor is the rate used as a reference for financial transactions worth more than €271 trillion globally.
It is being investigated by several authorities, including those in the United States, Britain and the EU, with investigators looking at a number of big banks that participate in the process of setting the benchmark rate.
The investigation has already led to a fine for Britain's Barclays and prompted an antitrust investigation by the commission.
Barnier has raised the possibility that EU regulators could take over supervising benchmarks such as Libor.
Repeating his recent pledge to criminalise the fixing of such indexes, Barnier told the hearing that it was "important to learn the lessons" of the Libor case.
He said, "These banking rate indexes are the stuff of daily life. They are not a mere technicality. Any manipulation of the rates has a very bad impact on public confidence and undermines all we are trying to do to improve honest and transparency in the banking industry."
He added, "Such actions also give rise to populist and protectionist movements across Europe and that is why we need strong and robust measures to tackle the issue."
Barnier is examining how such indexes are compiled. Any banks found guilty of breaching EU antitrust rules could face fines of up to 10 per cent of their global revenues.
His concerns are shared by the European Central Bank, which is privately pushing for a rethink on Euribor - the European equivalent of Libor - too.
Libor rates are compiled from estimates by large banks of how much they believe they have to pay to borrow from each other. But support is growing for changing the calculation to actual lending rates instead of the current system, with regulators worried that the existing set-up allows too much discretion
Barnier's 'get touch' message was echoed by British MEP Arlene McCarthy, deputy chairwoman of the economic and monetary affairs committee, which hosted the hearing.
The Socialist deputy said, "The extent and gravity of the Libor interest rate rigging scandal has led us to this urgent hearing of our committee, to call in the banks and regulators to answer for their failures and manipulation."
She said the presence of two EU commissioners and other experts at the hearing "reflects the gravity of the situation and the need for urgent reform".
The MEP, who is parliament's rapporteur on the draft EU law on market abuse added, "It is important that we learn the lessons from this crisis and ensure we have a robust legal and regulatory framework to prevent future manipulation or abuse and its potentially devastating consequences for the European and global economy and the continued crisis of confidence in banks and financial markets."
"We have moved swiftly to take action by amending the current market abuse rules widening the scope to cover key interest rates such as Libor and Euribor and other systemically important benchmarks and indices.
"The culture of the banking industry has not changed and this culture was aided and abetted by regulatory failures."
Further comment came from Gary Gensler, Chairman of the US Commodity Futures Trading Commission (CFTC), who exposed the Libor scandal in the US.
Appearing via video link, he agreed that it was "critical" to restore public confidence in the banking system.
He called for a system which would be "less vulnerable" to abuse and said, "Libor happened was the result of lack of controls and inherent conflicts of interest."
He said the Libor scandal also "went well beyond" the Barclays case.